Four years after the successful launch of Bitcoin, the world’s first decentralised cryptocurrency, Vitalik Buterin conceived the idea that would eventually become Ethereum in 2013. Later that year, a whitepaper was released, and in 2015, Ethereum officially launched and became the second-largest cryptocurrency by market capitalization.
Vitalik Buterin, co-founder of Ethereum, sought to reimagine the applications of blockchain technology and its untapped potential. He proposed creating a general-purpose chain that would welcome innovation and provide more functionalities than the secure payment system . Buterin's ultimate goal was not to fix the blockchain, but to make it better.
Ethereum Definition and Purpose
Ethereum is a decentralised, open-source blockchain network that features its own cryptocurrency, Ether. Ethereum brought about the use of smart contracts to programme certain instructions, which gave the blockchain more nuanced operations and functionality. As time passed and smaller projects built on the ecosystem, Ethereum served as the security and finality layer.
Unlike Bitcoin, Ethereum wasn’t created to be another digital currency but a new global decentralised computing platform that would take the security and openness of blockchains and extend them to a wide range of applications, from financial tools and games to art pieces, music, and complex databases. Its future potential is limited only by the imagination of developers; as long as it’s conceivable, it can be coded in Ethereum, which will launch it. The Ethereum Foundation puts it best: “Ethereum can be used to code, decentralise, secure, and trade anything.”
How Ethereum Works: A Brief Overview
Like other blockchain networks, Ethereum relies on active market participation, usually in the form of node operations, to keep the network decentralised and immune to attacks. Because the Ethereum network runs on a Proof-of-Stake consensus mechanism, every time a transaction is made, the validity of the transaction needs to be authenticated with respect to the network’s rules, and a consensus needs to be reached on whether or not to add the transaction to the blockchain.
Validators are responsible for verifying these transactions, among other duties that include ensuring that the sender has enough funds to complete the transaction and monitoring the blockchain for any signs of malicious activity, such as double-spending. Transaction fees are paid to validators as payment for their services.
Furthermore, the Ethereum network, through its virtual machine popularly called the EVM, enables the proliferation of blockchain-specific applications in sectors such as gaming and the entire universe of decentralised finance (which spans lending, borrowing, trading, and more).
Key Features of Ethereum
At its core, Ethereum ensures equal power and access for all market participants across its glossary of offerings. Anyone can build anything and deploy any token in a permissionless manner atop Ethereum. This gives room for developers to build and an equal field of play for investors and developers.
Unlike Bitcoin’s doggedness, Ethereum is highly flexible and hence easily improvable. Over the years, a number of updates, forks, and upgrades have occurred, each adding specific functionalities, eliminating security loopholes, and overall improving the user experience on-chain.
Some of the upgrades include The London Fork (EIP-1559), which altered the way transaction fees were calculated and ensured the burn of all transaction fees (removed from circulation), and the recent "Merge" Upgrade (EIP-3675), which saw the whole network transition from a Proof-of-Work consensus mechanism to a Proof-of-Stake consensus mechanism.
Being the only chain to have introduced smart contracts, the Ethereum network is highly programmable and has become home to nuanced products and services that not only serve crypto natives but also gamers, musicians, Artists, Bankers, and other works of art.
The Difference Between Ethereum and Ether (ETH)
Ethereum is the network (ecosystem) that houses the technology, while Ether, popularly referred to as ETH, is the native token of this Ethereum ecosystem. Any interaction with the Ethereum network is done using ETH to pay the network to execute smart contracts. Therefore, the fees paid in ETH are referred to as "gas."
Ethereum's Smart Contract: The Power Behind the Platform
Simply put, a "smart contract" is a piece of code that runs on the Ethereum blockchain. It is a set of code (its functions) and data (its state) that are stored on a particular address on the Ethereum blockchain. They are written in smart contract languages such as Solidity, Rust, and Golang.
Using a predetermined programme or set of conditions that are transparent, immutable, and self-executing, smart contracts govern all activities that are carried out on the chain. This means that once a smart contract is deployed on the network, it is open-source, cannot be changed, and will automatically execute its code when the conditions specified in the contract are met.
These smart contracts can be used to build a host of applications such as DEXes, crowdfunding platforms, prediction markets, etc.
Investing and Trading Ether: What You Need to Know
Due to Ethereum’s vast ecosystem and the integrated use of Ether as a gas fee, ETH is relatively in high demand, and thanks to the London Fork, all fees get removed from circulation, thereby reducing supply and consequently driving the prices up. If you're on the lookout for a safer, well-established crypto asset to put your capital into, ETH is definitely a wise choice.
However, just like every other investment, you need to do your own research, build enough conviction for your investment, and manage your risk according to your portfolio.
How to Buy ETH
You can get ETH from any crypto exchange, centralised or not. With a Decentralised exchange, you only need to fund your wallet with stablecoins like USDC or USDT and connect it to DEXes such as Uniswap with ETH pairs listed on them. As soon as you connect your wallet to the DEX, you will be able to swap your stablecoin for ETH.
With a Centralised Exchange, you also have to fund your account with some fiat. If you don’t have an account, go ahead and create one. Heads up: You will most certainly need to supply some personal information and have your identification verified. As soon as your account is funded, navigate to ETH pairs and swap your stacks for ETH.
There you have it; you're officially an ETH investor
Please note that this article is for educational purposes only and is not intended to be financial advice.